In the interests of business stability and continuity – particularly for private limited companies – it is essential to provide a safety net following the loss of a shareholder.
Running a company is both time consuming and complex. What may happen should a shareholder die or become seriously ill is often overlooked.
It is essential to provide a safety net following the loss of a shareholder:
- Shares may go to the deceased’s family, who have no interest in the business and would prefer a cash sum
- The remaining shareholders may want to retain control by buying shares from the deceased or ill shareholders estate – but may not have the resources to do so
- The shares may be taken over by someone who does not share the company’s objectives
- The correct Insurance Policy allows for sufficient funds to be available in the event of the death or serious illness of a shareholder. This ensures that the company can continue to operate while the outgoing shareholder or their family receives a cash sum for the value of the shares held.
- The surviving shareholders are able to receive the funds free of tax.
Benefits for shareholders
In the event of a shareholder’s death or serious illness, one of the most important things to your business is to ensure continuity. Shareholder Protection sets out the procedures and policies to help ensure that the right people retain control, and have the necessary funds to do so:
- It allows the transfer of shares to surviving shareholders, or the company, at a fair commercial price
- Set up insurance policies to provide the funds to purchase the shares
- Avoid having to draw on funds set aside for other purposes or taking on loans
- Prevent the sale of shares to external parties
- Documentation to enable all transactions to be made tax-efficiently
- Ensure the dependants of the critically ill or deceased shareholder are financially secure
- Maintain business stability and continuity
- Retain confidence of employees and customers